New Homes: Developers, Housebuilders and Management Companies

Mark Francois Excerpts

Wednesday 5th January 2022 Westminster Hall

[Mr Mark Francois (Rayleigh and Wickford) (Con)]

A very happy new year to you, Mr Betts. As we have limited time, I will make three points. First, I have served as an MP for over 20 years, and the whole issue of housing development and the associated infrastructure remains the most controversial issue in my constituency. One of the things I have learned from that is that in order to be accepted by local people, development must be done with people, rather than to people, but the major house builders rarely seem to understand that.

The legislative framework within which the house building industry has to operate is obviously fundamental, but we are still awaiting the publication of the Government’s much-delayed planning Bill. That has led to the iniquitous situation whereby the Department for Levelling Up, Housing and Communities continues to harry local authorities to finalise their local plans, despite holding back legislation that, once enacted, might mean that local councils have to revise or even substantially rewrite the plans that many of them have just spent literally years working on. It is becoming a bit like “Waiting for Godot”. To put it another way, the Department should remove the plank from its own eye. I humbly ask the Minister: when can we expect the publication of the planning Bill, and when is Second Reading likely to be?

Secondly, the UK housing market is now effectively an example of near market failure. It is completely dominated by half a dozen or so major house builders, some of whom have grown over the years by absorbing competitors. That restricts choice, and, even more importantly, artificially restricts housing supply. That is done deliberately to keep prices up. Liam Halligan, economics editor of the Sunday Telegraph and now a popular TV presenter, explored the problem in great detail in his very good 2019 book, “Home Truths: The UK's chronic housing shortage”, in which he exposes the adverse effects of the dominance of the volume house builders on the housing market.

For instance, as Liam Halligan points out, since the Office of Fair Trading’s investigation into the housing sector in 2008, the market share of the volume house builders has more than doubled, from 31% to 59%—not far off two thirds of the entire market. Covid is likely to have made that serious market anomaly worse by increasing the pressure on smaller builders, many of whom have limited financial reserves.

As Liam Halligan argues,

“An oligopolistic house building sector, deliberately restricting the supply of new homes to keep profits high, is anathema to free markets.”

But it is even worse than that. The paradigm that the Government appear to be working in is one where house building is held back by nimby local authorities, despite the best efforts of house builders to build new homes. In fact, the reverse is true. As the Local Government Association pointed out in February 2020, there are over 1 million extant planning permissions for new properties, but these have not been built out. In October 2020, the Campaign to Protect Rural England produced a report highlighting that over half a million of these plots alone are on brownfield sites. A former chief executive of Persimmon Homes stood down after getting his £75 million bonus—a bonus so profane that it embarrassed not just his company but the rest of the industry. Perhaps he was untroubled by these facts. Nevertheless, some of the practices we have heard about from colleagues this morning still go on. Where, one has to ask, are Ministers—and, indeed, the Competition and Markets Authority—in all of this?

I come to my third point. Let me give a practical example of how truly arrogant some of these companies have become. Bloor Homes, one of the largest privately owned developers in Britain, was so desperate to secure planning permission for a highly controversial site off Ashingdon Road in my constituency that it resorted to trying to interfere with the composition of the development control committee of Rochford District Council, which was due to consider the application last June. Bloor having lost—the committee turned it down—Bloor’s political consultant sent a series of highly intemperate, even offensive, texts late at night to the leader of the council. It is the sheer arrogance of these tactics, which I have not previously encountered in over 30 years of public life as a councillor and then as an MP, that I find deeply shocking. This is the sad reality of house building in Britain today. We have limited time, Mr Betts, so I will not read all the communications into the record. Perhaps I will have the opportunity to do on Second Reading of the planning Bill, so that Ministers, parliamentary colleagues, the media and others in the house building industry can learn how Bloor Homes really behaves.

In summary, the UK house building sector is deeply troubled, bordering on dysfunctional. Many ordinary families are struggling to buy a home, while some of the major house builders ruthlessly exploit their agony to maintain their already generous profit margins. They blame everyone but themselves: Government, MPs, local authorities or concerned local residents—anyone but the greedy companies that are at the heart of the problem. If Ministers really want to boost housing supply, let us have a full inquiry by the Competition and Markets Authority on over-concentration in the UK house building industry, and let us have it now.

[Mr Clive Betts (in the Chair)]

As I want to call the Front-Bench speakers at 10.38 am, the last two speakers will have five minutes each.

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Eddie Hughes)]

Thank you, Mr Betts. It is a pleasure to serve under your chairmanship. I congratulate my hon. Friend the Member for Wantage (David Johnston) on securing the debate. From the contributions that have been made, we can see that this is a topic that promotes passion on the part of not just those right hon. and hon. Members who have contributed, but their constituents.

I welcome the hon. Member for Greenwich and Woolwich (Matthew Pennycook) to his place. I wish him a happy—but obviously not too successful—new year. Regarding future legislation, particularly on leasehold reform, I look forward to discussing that with him, and with other Members, to ensure that we get the legislation in a good place before it is brought forward.

I understand how important it is that infrastructure comes with new housing. Indeed, my hon. Friend the Member for Wantage is a one-man campaign machine in working to secure infrastructure for his constituents along with housing. As he says, they are not NIMBYs; they just understand that houses must come with the infrastructure they require. Section 106 agreements of around £1 billion towards infrastructure were agreed in 2018-19. That includes contributions to transport, open spaces, the environment, education and medical facilities.

The community infrastructure levy also allows local authorities to obtain the funds needed to deliver infrastructure such as roads, schools, health facilities and flood defences. Currently, around 50% of local authorities charge CIL. It is estimated that the liability for new planning permissions amounts to roughly £1 billion since 2018-19. The housing infrastructure fund provides £4.3 billion so that improved transport connectivity, healthcare services and other infrastructure can be put in place before housing is built.

We have already made changes to reduce the renegotiation of affordable housing in infrastructure commitments made through section 106 agreements. To reduce renegotiation, the Government require local authorities to have clear policy requirements in their local plans so that landowners and site purchasers are aware of likely costs up front and can take them into consideration when agreeing land transactions. The Government have also set out clear guidance on how viability assessments should be undertaken and made public to ensure consistency and transparency.

The Government recognise, however, that the existing system of developer contributions can sometimes be costly and complex, and can delay developments and reduce certainty for communities, which is why we are exploring the introduction of a new infrastructure levy to replace the current system of developer contributions. That levy will seek to deliver at least as much value and on-site affordable housing as at present. To reduce the renegotiation issues to which section 106 agreements are prone, we propose making the levy a non-negotiable charge on a fixed proportion of the development value. Our intention is that the proceeds from the levy will be collected and spent locally, and that councils will have flexibility in that spending.

Unfortunately, I do not have much to add on planning reforms. The Secretary of State took control of the newly empowered Department in September, and he has an awful lot in his in-tray to work through, but he is committed to looking at planning reform and fulfilling the Government’s levelling-up ambitions by carefully considering what reforms to the system are needed and how they are best taken forward. An announcement will be made in due course.

[Mr Francois]

It is disappointing that the Minister cannot give any timings on when the planning Bill is coming, because some of us would like to know before we retire. He has heard 10 very good Back-Bench contributions in this debate, all of which have been, in one way or another, highly critical of the housebuilding industry in this country. When will the Government support a Competition and Markets Authority inquiry into the UK housebuilding industry?

[Eddie Hughes]

As I have set out, the Government are already working closely with the CMA to push forward their ambitions. There are some ongoing court cases, so it would be inappropriate to comment except to say that we are enthusiastic in our support. I put on the record that the Secretary of State read my right hon. Friend’s book over Christmas, and I think he has been in touch with him to say how good a read it was.

[Mr Francois]

He has, but I was told I could not plug it in the debate. [Laughter.]

[Eddie Hughes]

Briefly, as I am running out of time, a number of Members have highlighted that for net zero, we need to build homes that are as environmentally sound and low carbon in their production as possible. People are concerned about the transition to the new legislation. Just before Christmas, we introduced part L of the building regulations to improve the energy efficiency of homes. For a developer to make use of the transitional arrangements, they must have submitted an initial notice, a building notice or a full planning application to the local authority prior to the new regulations coming into effect in June 2022. They must then have commenced work on an individual building to which they want to apply the previous standards before June 2023.

Members referred to the idea of simply digging a trench in order to have started work on a site, but we are going to be more stringent with the application of the arrangements. For the previous regulations to apply, developers must have started the foundations of a building, for example. Those transitional arrangements mean that developers can no longer build to out-of-date energy standards over several years as sites are developed. Unless construction has actually commenced, they will need to build to current regulations. A full technical consultation with regard to the future homes standard is planned for spring 2023. As part of that, we will consider what transitional arrangements are appropriate for that legislation.

Several Members mentioned management companies and, in many cases, their bad practice. Put simply, the current situation is unfair to freeholders, and we are committed to introducing legislation to right that wrong. We intend to create a new statutory regime for freeholders based on the rights enjoyed by leaseholders. This would ensure that maintenance charges must be reasonably incurred, and that the services provided are of an acceptable standard, and would include a right to challenge the reasonableness of the charges at a property tribunal. Freeholders would have a right to change the provider of maintenance services by applying to the tribunal to appoint a new manager. That may be especially helpful for freeholders dissatisfied with the services they currently receive. The Government intend to introduce legislation to implement those changes as soon as parliamentary time allows.

The build-out rate was also raised. The Government are clear that new homes should be built out as soon as possible once planning permission is granted. Sir Oliver Letwin’s independent review of build-out rates found no evidence that speculative land banking is part of the business model of major house builders, nor that it is a driver of slow build-out rates. None the less, we note that build-out is important to communities and are exploring further options. In our “Planning for the future” White Paper, which was referenced earlier, we have been clear that we will explore those further options to support faster build-out rates as part of our proposed planning reform.

My hon. Friend the Member for Keighley (Robbie Moore) and the hon. Member for Halifax (Holly Lynch) raised concerns about Harron Homes. I would be happy to meet them to discuss their concerns to see if there is anything that we can advise. Obviously, we cannot intervene in particular cases, but there might be some advice that we can give. With regard to the Building Safety Bill, the Secretary of State is working closely with Lord Greenhalgh to see what else can be done. I hope that an announcement will be made in the not-too-distant future.

We have had an excellent debate. I am grateful for the opportunity to contribute to and respond to it. I look forward to bumping into Members in the corridor to discuss the issues that they have raised today.